Understanding the One Big Beautiful Bill Act: What It Means for Your Taxes
On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act (OBBBB)—a piece of tax and spending legislation that touches nearly every corner of the U.S. tax code. From individuals and families to small businesses and corporate taxpayers, this bill brings a broad range of changes—some welcome, others more complex. Below is a breakdown of some of the significant updates and changes that will be implemented.
Popular 2017 Tax Cuts Made Permanent
Several key provisions from the 2017 Tax Cuts and Jobs Act (TCJA), passed during President Trump’s first term, are now permanent. These include:
Estate and Gift Tax Exemption - The exemption amount is set at $15 million per person starting in 2026, with annual inflation adjustments.
Top Individual Income Tax Rate - The highest tax rate for individuals remains steady at 37%.
Increased Standard Deduction - The standard deduction amounts are further increased, meaning many taxpayers can reduce their taxable income by a larger, fixed amount without itemizing deductions.
Child Tax Credit - The credit is boosted to $2,200 per qualifying child and will be adjusted annually for inflation.
Mortgage Interest Deduction - Interest on mortgage acquisition debt is deductible up to $750,000 of principal. Starting in 2026, eligible mortgage insurance premiums will also become deductible again.
Alternative Minimum Tax (AMT) Exemptions - AMT exemption amounts remain higher but with some tweaks to how the phaseout thresholds work.
Personal Casualty Loss Deductions - Deductions for losses will continue to apply only for federally declared disasters. Starting in 2026, losses from disasters declared by state governors will also qualify. Plus, “qualified disaster” treatment extends to events occurring up to 30 days after the OBBB enactment date.
Limitation on Itemized Deductions for High Earners - A new overall limit applies to taxpayers in the top 37% tax bracket, capping the tax benefit from itemized deductions to no more than a 35% rate.
Retroactive Business Deductions = Real-Time Relief
Several valuable business deductions are back—and retroactive. Here are some key highlights:
100% Bonus Depreciation - Businesses can once again deduct qualified property purchased or constructed after Jan. 19, 2025.
Full Deduction for Domestic Research - Domestic research and experimental expenses can now be fully deducted for tax years starting after 2024. Businesses that previously had to capitalize these costs in 2022–2024 may be able to deduct them retroactively by amending prior returns—or choose to spread the deduction across 2025 and 2026. This is especially helpful for small businesses and startups.
Expanded Interest Deduction (Section 163(j)) - Beginning with the 2025 tax year, businesses will calculate their “adjusted taxable income” without factoring in depreciation, amortization, or depletion.
Higher Section 179 Expensing Limits - The cap for immediate expensing of equipment and other business property is going up for tax years beginning after 2024.
Excess Business Loss Limitation Now Permanent - The rule limiting large losses from non-corporate businesses will stick around for good. Disallowed losses will continue to convert into net operating losses (NOLs) in future years.
New Deduction for “Qualified Production Property” - A 100% deduction is now available for certain U.S.-based real property used in qualified manufacturing or production activities. The property must be nonresidential, construction must begin between January 19, 2025, and January 1, 2029, and it must be originally used by the taxpayer. Important: this deduction doesn’t apply to property that’s leased, so ownership matters. This one’s complex, so businesses should consult their advisor to assess eligibility.
New Deductions Inspired by the Campaign Trail
Temporary deductions (available 2025–2028) include:
Tax-Free Tips (Up to $25,000 Deduction) - Workers in certain tipped occupations may now deduct up to $25,000 of qualified cash tips from their taxable income. The deduction begins to phase out when modified adjusted gross income exceeds $150,000 for single filers ($300,000 for joint filers). Employers must follow specific reporting requirements to ensure eligibility.
Overtime Pay Deduction (Up to $25,000 for Joint Filers) - A new deduction of up to $12,500 (or $25,000 for married couples filing jointly) is available for qualified overtime wages. This benefit also phases out for incomes over $150,000 (or $300,000 jointly), and employers must report qualifying overtime separately on employees’ W-2 forms.
Temporary Senior Deduction for Taxpayers Age 65+ - Taxpayers age 65 and older can now claim an additional deduction of $6,000 per person ($12,000 for a married couple). This deduction phases out starting at $75,000 of modified adjusted gross income ($150,000 for joint filers), offering extra relief for many retirees.
Car Loan Interest Deduction (Up to $10,000) - Taxpayers who purchase a new U.S.-assembled passenger vehicle for personal use may deduct up to $10,000 in interest on the vehicle loan. The deduction begins to phase out at $100,000 of income ($200,000 for joint filers). Additional reporting rules apply to lenders or institutions handling qualifying interest.
Additional Tax Highlights from the OBBB
There's more to explore in this massive legislation, such as:
“Trump Accounts” – New Tax-Deferred Savings for Children - A new savings vehicle will allow annual, nondeductible contributions of up to $5,000 for the benefit of a child under age 18. Funds must remain untouched until the child turns 18, and earnings are taxed when withdrawn. For children born between 2025 and 2028, the government will contribute an initial $1,000. Contributions cannot begin until July 2026, and strict eligibility rules apply. Due to the complexity, professional guidance is highly recommended before opening an account.
Changes to Green Energy Tax Credits - Many of the clean energy credits introduced under the Inflation Reduction Act are being modified, phased out, or terminated faster than expected. Businesses and individuals planning clean energy projects should reevaluate their strategies in light of these accelerated changes.
New Federal Credit for Scholarship Donations (Starting 2027) - Beginning in 2027, taxpayers can claim a federal tax credit of up to $1,700 for qualified donations to approved scholarship-granting organizations. These organizations must use the contributions to directly fund student scholarships.
Updates to Charitable Contribution Deductions - Starting in 2026, taxpayers who don’t itemize can claim an above-the-line deduction of up to $1,000 ($2,000 for joint filers) for cash charitable contributions. In addition, new “floors” apply:
Corporations must exceed a 1% threshold of income to deduct contributions
Individuals who itemize must exceed a 0.5% threshold
These rules begin for tax years after 2025.
Expanded Small Business Stock Exclusion (Section 1202) - For stock issued after OBBB’s enactment, taxpayers can now exclude:
50% of gains on stock held at least 3 years
75% of gains on stock held at least 4 years
100% of gains on stock held 5 years or more
The lifetime gain exclusion increases to $15 million (up from $10 million), and eligible issuing companies can now have up to $75 million in assets (up from $50 million).
Employee Retention Credit claims - No refunds will be allowed for claims relating to Q3 or Q4 of 2021 if the refund claim was filed after Jan. 31, 2024.
Expanded Community Incentives - The OBBB extends and enhances programs like Opportunity Zones, Low-Income Housing Tax Credits, and New Markets Tax Credits, offering more permanent and generous incentives for investment in underserved communities.
Boosted Family Tax Benefits - Working families will see increased support through higher childcare credits, a larger adoption tax credit, and expanded dependent care assistance, all aimed at easing the cost of caregiving.
SALT Deduction Cap: A Temporary Lift
The TCJA provided a $10,000 cap on the itemized deduction for state and local taxes claimed by individual taxpayers. As one of the most discussed provisions in the OBBBB, the final legislation provides a temporary lift to that cap - $40,000 for 2025 with small increases each year through 2029. However, if your modified adjusted gross income is over $500,000, the higher cap starts phasing out—and by around $600,000, you could still be limited to just $10,000. In 2030, the cap drops back down to $10,000 across the board.
Pass-Through Entity Deductions
Concerns that deductions for pass-through entity taxes (PTET) would be limited have been put to rest. The popular 20% deduction for income from pass-through businesses remains unchanged. The income level where the deduction starts to phase out is now higher—$75,000 for individuals and $150,000 for married couples filing jointly. Plus, there’s a new minimum deduction of $400 for those with at least $1,000 of active qualified business income.
Next Steps
With over 100 tax-related provisions in the OBBB, our team is actively reviewing the legislation in depth. We’ll continue to share updates in the weeks and months ahead as further guidance and details emerge.
In the meantime, if you're wondering how these changes could affect your business, estate plan, or 2025 tax return, please reach out to the Stopp & VanHoy tax team.